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PD Editorial: A chance to discuss Prop. 13?

Proposition 13's greatest strength is the clarity of the best known and most popular provision: The annual tax on property is 1 percent of its most recent sale price.

It doesn't take a lawyer to decipher that.

The lawyers get busy - assessors and judges, too - when the time comes to define a sale, specifically the sale of commercial property such as a hotel, office building, apartment complex or vineyard.

Whether by oversight or design, the authors of Proposition 13 didn't specify what constitutes a sale. That task fell to the state Legislature, which enacted a straightforward rule for single-family homes and a considerably more opaque standard for other property.

Thirty-five years later, the issue is back in court. But settling the issue almost certainly will require the Legislature to revisit the 1979 standard.

The legal dispute, as laid out in the Los Angeles Times, involves computer magnate Michael Dell's purchase of the Fairmont Miramar Hotel in Santa Monica, a popular destination for the rich and famous.

In 2006, Dell agreed to buy the beachfront hotel for $200 million. Before the sale was completed, it was restructured to avoid a reassessment, thus retaining a property tax bill based on an $86 million valuation from 1999.

How did that work?

After the sale, ownership was divided among Dell, his wife and two investment partners. They bought the hotel, but because no single buyer acquired a majority interest, the sale isn't recognized as a change of ownership for the purpose of assessing property taxes.

A reasonable person, especially anyone who ever bought a house, might call that a sham.

Los Angeles County's tax assessor did, too, and he tried to adjust the taxes on the hotel to reflect the sale. Dell sued, a Superior Court judge ruled in his favor, and the county has appealed.

Dell isn't the first buyer to benefit from the loophole. One well-known example occurred in Sonoma and Napa counties, where E&J Gallo bought 1,000 acres of vineyards in 2002. Ownership was divided among 12 Gallo family members, none of the property was reassessed, and some of it is still taxed based on a 1975 assessment, Napa County officials told the Los Angeles Times.

The change of ownership rule also blocks reassessment of corporate property unless a majority of the stock is sold to a single person in a single transaction. You can't do that with a house, which is why the tax burden has shifted so substantially from commercial to residential owners since Proposition 13 passed.

Proposition 13 is where politics meets Newton's third law - any suggestion that it might be time to amend the 1978 initiative is met with an equal and opposite reaction. We'll include our usual disclaimer: The protections for residential property owners should remain intact.

Other aspects may be worthy of a new look, however. And on this point, there was one unexpected response to the Fairmont dispute: Jon Coupal, the head of the Howard Jarvis Taxpayers Association, an advocacy group named for Proposition 13's coauthor, said legislators should outlaw "gimmicks" such as the one used by Dell.

"This is a fairly clear example of someone gaming the system a bit," Coupal told the Times. "We have not seen that in the past."

Maybe he didn't look. In the past, bills to revise the rules for commercial property sales were denounced as "job killers" and buried. Perhaps the door is now open, if only a bit, for a serious discussion about Proposition 13 and tax equity.

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